Michael Hartnett, chief investment strategist at BofA Merrill Lynch, has defined what he calls the biggest risk in the markets right now.

Drumroll, please…

“The greatest risk of all,” Mr. Hartnett says, “is that Wall Street excesses rather than Main Street recovery forces the Fed to tighten.”

He’s worried that the “lukewarm” economic recovery has coincided with bubble-like conditions in the markets and a wave of complacency across investor sentiment. Those conditions continue to weigh on Main Street while Wall Street prospers, he says, creating a dichotomy that potentially puts the Federal Reserve in a tough spot.

“The longer it takes for growth and rates to normalize,” he says, “the greater the risk of speculative excesses and ultimately a policy response aimed at curbing speculation in asset markets before the economy has fully healed.”

Mr. Hartnett has his eye on third-quarter GDP as an important indicator of what will happen next. Remember the economy contracted by 1% in the first three months of the year due to some awful winter weather. Many expect growth to snap back during the current quarter. That’s why third-quarter figures could be key indicators of where the economy truly stands.

“Either third-quarter growth is +3% confirming recovery and cause rates to rise, or speculative excesses appear causing central banks to start ‘talking down’ asset prices,” he says. “Until then be long but watch credit, the epicenter of the speculative fervor. One of the better leading indicators of the 1987 crash was a period of rising bond yields, rising gold prices and falling corporate bond prices.”